Limitations of Backflush Costing

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This system does not strictly adhere to Generally AcceptedAccounting Principles (GAAP). For example, work in process exists, but is not recognized in the financial statements.

There is absence of audit trails, i.e. the inability of the accounting system to pinpoint the uses of resources at each step of the production process. If there is large amount of inventory, there is possibility of manipulation of income.

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